Beckham law
Encyclopedia
The "Beckham Law" is a Spanish Tax Decree passed in June 2005. The law gained its nickname after the footballer David Beckham
became one of the first foreigners to take advantage of it. However the law is aimed at all foreign workers (particularly the wealthier ones) living in Spain
. Upon application and acceptance, such individuals are liable only for Spanish taxes on their Spanish source income and assets.
However the Royal Decree 687/2005 modifies this law with respect to wealthy foreign workers. To ease the tax burden and to attract the likes of Beckham and top executives, the government introduced amendments to the definition of tax residency.
On June 10th, 2005 the Spanish government approved Royal Decree 687/2005 implementing the Personal Income Tax regulations in relation to article 9.5 of the Spanish PIT Law. The "Beckham law", as it is commonly known, regulates the procedure to apply for the new Spanish tax regime for expatriate
s in force since January 1, 2004.
The change of legislation allows an individual who has relocated from another country to Spain the choice of being taxed as a Spanish resident or as a non-Spanish resident. The choice applies in the year of arrival to Spain and continues for the following five years. By electing to be non-resident, one can limit their liabilities to Spanish taxation to Spanish income and assets only and not on a worldwide basis. Thus under Spanish Non-Resident Income Tax rules they may avoid tax on their worldwide income for a period of up to six tax years provided that certain conditions are met.
Should such a choice be made, the expatriate will be subject to Spanish taxes on their Spanish source income and on their assets located or exercisable in Spanish territory, being subject to a flat 24% tax rate on his salary income instead to the progressive tax scale for resident individuals (ranging from 24% up to 43%) during the year of acquisition of the Spanish tax residency and the following 5 consecutive years. Note that the taxpayer gets no personal allowances or other deductions from gross income (e.g. for mortgage costs) under this option and thus for lower earners it does not always result in a lower tax burden.
In November 2009 it was reported that the law was under review, and foreigners entering Spain after 1 Jan 2010 would not be able to benefit in the same way as prior.
He must have relocated to Spain to take up employment with a contract, and the employer must be Spanish or have a permanent physical presence in Spain.
Employment duties must be carried out in Spain, although working outside of Spain up to 15% of the time is permitted.
The employer must either be a Spanish company or Spanish entity, or if not Spanish resident then the employer operates through a permanent establishment in Spain.
The income derived from the employment is not deemed exempt under Spanish income tax law.
David Beckham
David Robert Joseph Beckham, OBE is an English footballer who plays midfield for Los Angeles Galaxy in Major League Soccer, having previously played for Manchester United, Preston North End, Real Madrid, and A.C...
became one of the first foreigners to take advantage of it. However the law is aimed at all foreign workers (particularly the wealthier ones) living in Spain
Spain
Spain , officially the Kingdom of Spain languages]] under the European Charter for Regional or Minority Languages. In each of these, Spain's official name is as follows:;;;;;;), is a country and member state of the European Union located in southwestern Europe on the Iberian Peninsula...
. Upon application and acceptance, such individuals are liable only for Spanish taxes on their Spanish source income and assets.
Background
Under the Spanish tax law individuals who spend 183 days or more during a tax year in Spain are normally deemed tax resident. Temporary absences are ignored when determining residency unless a person can prove that he is a habitually resident in another country. Thus, footballers coming to Spain would automatically have become Spanish tax resident on the day count rule (over 183 days) and as Spanish residents would have been liable to Spanish tax on a worldwide basis.However the Royal Decree 687/2005 modifies this law with respect to wealthy foreign workers. To ease the tax burden and to attract the likes of Beckham and top executives, the government introduced amendments to the definition of tax residency.
On June 10th, 2005 the Spanish government approved Royal Decree 687/2005 implementing the Personal Income Tax regulations in relation to article 9.5 of the Spanish PIT Law. The "Beckham law", as it is commonly known, regulates the procedure to apply for the new Spanish tax regime for expatriate
Expatriate
An expatriate is a person temporarily or permanently residing in a country and culture other than that of the person's upbringing...
s in force since January 1, 2004.
The change of legislation allows an individual who has relocated from another country to Spain the choice of being taxed as a Spanish resident or as a non-Spanish resident. The choice applies in the year of arrival to Spain and continues for the following five years. By electing to be non-resident, one can limit their liabilities to Spanish taxation to Spanish income and assets only and not on a worldwide basis. Thus under Spanish Non-Resident Income Tax rules they may avoid tax on their worldwide income for a period of up to six tax years provided that certain conditions are met.
Should such a choice be made, the expatriate will be subject to Spanish taxes on their Spanish source income and on their assets located or exercisable in Spanish territory, being subject to a flat 24% tax rate on his salary income instead to the progressive tax scale for resident individuals (ranging from 24% up to 43%) during the year of acquisition of the Spanish tax residency and the following 5 consecutive years. Note that the taxpayer gets no personal allowances or other deductions from gross income (e.g. for mortgage costs) under this option and thus for lower earners it does not always result in a lower tax burden.
In November 2009 it was reported that the law was under review, and foreigners entering Spain after 1 Jan 2010 would not be able to benefit in the same way as prior.
Conditions
A person cannot invoke the Beckham law if he resided in Spain in the previous 10 years prior to settling in Spain.He must have relocated to Spain to take up employment with a contract, and the employer must be Spanish or have a permanent physical presence in Spain.
Employment duties must be carried out in Spain, although working outside of Spain up to 15% of the time is permitted.
The employer must either be a Spanish company or Spanish entity, or if not Spanish resident then the employer operates through a permanent establishment in Spain.
The income derived from the employment is not deemed exempt under Spanish income tax law.